The Public Accounts Committee (PAC) has called for improvements in the way the Department of Health (DH) oversees social care providers and in the support local authorities provide to personal budget holders.

In the report, the committee said that effective oversight of the care market is essential to protect the interests of both social care users and taxpayers and that it was the DH's responsibility to provide this oversight.

But despite growing regional consolidation in the social care market, the committee found the DH did not have a view of any risk to services from higher levels of provider dominance. In addition, it did not have arrangements to protect residents if large-scale providers fail.

The DH said that it did not have sufficient information to identify providers that were becoming dominant, nor the power to stop them if they did but said it was considering a range of options to improve this.

"The Department of Health must get to grip with the very real risks to the social care market, if we are to avoid another Southern Cross," warned Margaret Hodge, chair of the committee.

Southern Cross was the UK's largest care provider, with a 9% share of the national market and about 30% in the north-east of England, before financial difficulties caused its collapse.

Hodge said it was "deeply worrying" that the DH had not made it clear what would happen when providers fail. "This is crucial to protect frail and vulnerable users of care and to provide reassurance that the responsibilities of the failed providers will be transferred quickly and with minimum disruption to users," she said.

The committee's examination of personal care budgets found that although they were popular, users needed more support to obtain good value. Some users were confused about what they could spend their budget on, and there are wide disparities in the level of information provided by different authorities.

Another issue is that about a half of users find it difficult to change their support and about a third find the experience of employing care assistants daunting.

The committee said that the procedures for users to complain and get redress when things go is inadequate. If personal budgets are to be successfully sustained, then these issues must be addressed, it said.

In addition, the DH cannot compel local authorities to introduce personal budgets and a small number are "dragging their feet" in offering users this choice. The committee suggested the more radical option of enshrining the right to a budget in law.

Hodge said: "It is alarming that people are not getting the support they need to make sensible choices about their social care. The use of personal budgets to promote user choice has been supported by successive governments.

"They can work only if people get the right information when they need it. But there are wide variations in the information provided by local authorities. People should not be subject to a postcode lottery when deciding on their care. This is important for taxpayers as well as users."

Andrew Chidgey, head of policy and public affairs at the Alzheimer's Society, called for stronger controls to be put in place to avoid another situation like Southern Cross. "Two thirds of care home residents have dementia. It is essential that their welfare is protected," he told the Guardian's social care network.

"Additionally personal budgets can provide control and choice, but people need the tools and support to make informed decisions," said Chidgey. "Many people with dementia and their carers do not have access to personal budgets. By 2021 over a million people in the UK will have the condition. We need services which support people with dementia, and their carers, to access and use personal budgets to best effect."

£23bn is spent annually by government and private individuals on care services in the UK, including some £1.5bn spent by publicly-funded personal budget holders, mostly on home care.